In USMCA Ratification Fight, It's Much Ado about Labor

Congressional Democrats are starting to flex their muscles against President Trump’s trade policy. As ratification of the U.S.-Mexico-Canada Agreement (USMCA) hangs in the balance, House Speaker Nancy Pelosi and other prominent Democrats have called on U.S. Trade Representative Robert Lighthizer to strengthen enforcement of the pact. Among a number of issues the Democrats want reopened, such as pharmaceutical protections, they have been particularly vocal about enforcing the labor obligations in the new deal.

Low-wage labor from Mexico has long been a concern for Democrats, who have sought increasingly stringent labor provisions in trade agreements to address this perceived problem. Borrowing heavily from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the USMCA labor chapter is the strongest set of labor obligations in a U.S. trade agreement to date, and slightly more expansive than the last few trade agreements the United States has signed.

In the original North American Free Trade Agreement (NAFTA), labor issues were addressed in a side letter and were not subject to the standard state-to-state dispute settlement process, but a separate and more cumbersome enforcement procedure instead. In the USMCA, however, the parties to the agreement can bring a complaint under the normal dispute procedures (Chapter 31) if they believe there is a violation of the labor chapter.

In addition, the USMCA labor chapter also includes an annex (23-A) that states “Mexico shall adopt and maintain” measures to ensure the right to collective bargaining as well as setting up “an independent entity for conciliation and registration of unions and collective bargaining agreements” and “independent Labor Courts for the adjudication of labor disputes.”

Article 3 of the annex states: "It is the expectation of the Parties that Mexico shall adopt legislation described above before January 1, 2019. It is further understood that entry into force of this Agreement may be delayed until such legislation becomes effective."

Mexico was supposed to adopt legislation to this effect in January 2019 but did not meet that deadline. However, this was just an “expectation” and Mexico was not required to meet that deadline. Democrats, however, have threatened not to ratify the deal until Mexico passes labor reforms and enforcement of these laws is strengthened. Recently, Mexico has taken action to put these measures to a vote, which is likely to take place by the end of April. Yet it is not clear that will be sufficient for those opposed to the current labor chapter.

For example, in one proposal, Sen. Ron Wyden and Sen. Sherrod Brown have urged Ambassador Lighthizer to negotiate a “Labor Cooperation and Enforcement Agreement” with Mexico to allow for each government to audit facilities suspected of violating labor standards and calling on Mexico to increase the number of enforcement personnel to carry this out. The proposal suggests some assistance from the United States for “capacity building,” but it is not clear what that will mean in practice. Hiring and training more personnel to monitor labor laws will be costly for Mexico, and no funds have been allocated in the 2019 budget for this.

There are several problems with this approach. First, the Wyden/Brown proposal is vague on who exactly would be responsible for auditing facilities suspected of violating labor standards. If Sen. Wyden and Sen. Brown want to give the U.S. government the power to audit facilities in Mexico, it raises a number of questions. While such a proposal may align Democrats with the definition of reciprocity embraced by Trump, making this one-sided commitment would be equivalent to treating Mexico as a junior partner in North America. What would be the response if Mexico wanted to audit U.S. factories?

In addition, the Wyden/Brown proposal has been pitched as a side agreement that could be incorporated into the deal without reopening the agreement in its entirety. But this is a little odd. Though a side agreement does not require the reopening of the agreement, it would not be incorporated into the labor chapter. Therefore, it is hard to see how it would be enforced.

And if Democrats push to reopen the text and include such provisions into the agreement itself, it may also be at odds with commitments outlined in Article 23.5.4 of the newly negotiated labor chapter, which states, “Nothing in this Chapter shall be construed to empower a Party’s authorities to undertake labor law enforcement activities in the territory of another Party.”

But making changes to the text may be the only viable option for Democrats to secure enforcement. They would need to reopen the agreement and include an annex to the chapter similar to that which appears in the U.S.-Peru Free Trade Agreement’s environmental chapter Annex 18.3.4 on Forest Sector Governance, which was invoked by the United States in October 2017 to block illegal timber exports from Peru. In particular, Articles 5-7 of that annex provide commitments on verification and enforcement measures:

Verification and Enforcement Measures

5. The Parties shall cooperate for the purpose of enforcing or assisting in the enforcement, and deterring circumvention, of the laws, regulations, and other measures of each Party related to forest sector governance, including those related to the harvest of, and trade in, timber products.

Audits of Producers and Exporters

6 (a) Peru shall conduct periodic audits16 of producers and exporters in its territory of timber products exported to the United States, and verify that exports of those products to the United States comply with all applicable laws, regulations, and other measures of Peru governing the harvest of, and trade in, timber products including, in the case of tree species listed in CITES Appendix II, relevant chain of custody requirements.

(b) In addition, on the written request of the United States, Peru shall conduct an audit of a particular producer or exporter in its territory as specified in the request, with a view to evaluating the compliance of that producer or exporter with those laws, regulations, and other measures. On written request of the United States, Peru shall provide a written summary of its finding of the request audit. The United States will treat any documents or information exchanged in the course of an audit as confidential if such documents or information had been designated by Peru as confidential under Article 5.6.

Verifications

7. On the written request of the United States, Peru shall verify whether, with respect to a particular shipment of timber products from Peru to the United States, the exporter or producer of those products has complied with applicable laws, regulations, and other measures of Peru governing the harvest of, and trade in, those products.

Getting Mexico to agree to such changes however, may be a challenge.

Second, there are mechanisms within the labor chapter that could be used to facilitate enforcement. Article 23.12.5 enumerates 18-plus cooperative activities that the parties can undertake to address labor issues, such as the identification and movement of goods produced by forced labor, and combatting forced labor and human trafficking, including on fishing vessels. If these problems are considered to be shared, then working cooperatively to address them, instead of placing the entire burden on Mexico, may be a more positive path forward.

Third, the USMCA has made the labor provisions subject to dispute settlement, and particular language has been clarified to account for criticisms from labor groups after the U.S. loss in the U.S-Guatemala labor case under the CAFTA. The main issue with dispute settlement, however, is that the text of the USMCA remains nearly identical to NAFTA, whose state-to-state dispute settlement function was easily stalled through blocking the appointment of panelists. If the Democrats are serious about strengthening enforcement, they should call for changes to the dispute settlement provisions found in Chapter 31 to ensure that the entire agreement can be enforced.

Finally, while it is true that a level playing field requires every party to abide by the same rules, and that we should all aspire to high commitments, we need to ask how we can balance high standards agreements with the capacity constraints faced by countries climbing the development ladder. This is a discussion bigger than any single trade agreement and should be openly debated in the appropriate multilateral forums. The World Trade Organization is currently in the midst of this debate, which could have major implications for developing countries.

It is without question that Mexico has struggled to address many of its labor challenges, but reform efforts have been building. In particular, President Lopez Obrador campaigned on this issue. Just last week he accelerated pressure on his own Congress to meet the obligations set out in the USMCA labor chapter, and they seem to have listened. But implementation of any new reform package is never easy. Mexico is clearly willing to make substantive changes in order to preserve a trade relationship it highly values.

Therefore, if labor enforcement is what Democrats want to push for, it is worth reflecting on the issues raised above to craft a more balanced proposal that takes Mexico's challenges with enforcement seriously. The current approach taken by Democrats on this issue is flawed, heavy-handed, and may not even improve enforcement.

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In USMCA Ratification Fight, It's Much Ado about Labor

Congressional Democrats are starting to flex their muscles against President Trump’s trade policy. As ratification of the U.S.-Mexico-Canada Agreement (USMCA) hangs in the balance, House Speaker Nancy Pelosi and other prominent Democrats have called on U.S. Trade Representative Robert Lighthizer to strengthen enforcement of the pact. Among a number of issues the Democrats want reopened, such as pharmaceutical protections, they have been particularly vocal about enforcing the labor obligations in the new deal.

Low-wage labor from Mexico has long been a concern for Democrats, who have sought increasingly stringent labor provisions in trade agreements to address this perceived problem. Borrowing heavily from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the USMCA labor chapter is the strongest set of labor obligations in a U.S. trade agreement to date, and slightly more expansive than the last few trade agreements the United States has signed.

In the original North American Free Trade Agreement (NAFTA), labor issues were addressed in a side letter and were not subject to the standard state-to-state dispute settlement process, but a separate and more cumbersome enforcement procedure instead. In the USMCA, however, the parties to the agreement can bring a complaint under the normal dispute procedures (Chapter 31) if they believe there is a violation of the labor chapter.

In addition, the USMCA labor chapter also includes an annex (23-A) that states “Mexico shall adopt and maintain” measures to ensure the right to collective bargaining as well as setting up “an independent entity for conciliation and registration of unions and collective bargaining agreements” and “independent Labor Courts for the adjudication of labor disputes.”

Article 3 of the annex states: "It is the expectation of the Parties that Mexico shall adopt legislation described above before January 1, 2019. It is further understood that entry into force of this Agreement may be delayed until such legislation becomes effective."

Mexico was supposed to adopt legislation to this effect in January 2019 but did not meet that deadline. However, this was just an “expectation” and Mexico was not required to meet that deadline. Democrats, however, have threatened not to ratify the deal until Mexico passes labor reforms and enforcement of these laws is strengthened. Recently, Mexico has taken action to put these measures to a vote, which is likely to take place by the end of April. Yet it is not clear that will be sufficient for those opposed to the current labor chapter.

For example, in one proposal, Sen. Ron Wyden and Sen. Sherrod Brown have urged Ambassador Lighthizer to negotiate a “Labor Cooperation and Enforcement Agreement” with Mexico to allow for each government to audit facilities suspected of violating labor standards and calling on Mexico to increase the number of enforcement personnel to carry this out. The proposal suggests some assistance from the United States for “capacity building,” but it is not clear what that will mean in practice. Hiring and training more personnel to monitor labor laws will be costly for Mexico, and no funds have been allocated in the 2019 budget for this.

There are several problems with this approach. First, the Wyden/Brown proposal is vague on who exactly would be responsible for auditing facilities suspected of violating labor standards. If Sen. Wyden and Sen. Brown want to give the U.S. government the power to audit facilities in Mexico, it raises a number of questions. While such a proposal may align Democrats with the definition of reciprocity embraced by Trump, making this one-sided commitment would be equivalent to treating Mexico as a junior partner in North America. What would be the response if Mexico wanted to audit U.S. factories?

In addition, the Wyden/Brown proposal has been pitched as a side agreement that could be incorporated into the deal without reopening the agreement in its entirety. But this is a little odd. Though a side agreement does not require the reopening of the agreement, it would not be incorporated into the labor chapter. Therefore, it is hard to see how it would be enforced.

And if Democrats push to reopen the text and include such provisions into the agreement itself, it may also be at odds with commitments outlined in Article 23.5.4 of the newly negotiated labor chapter, which states, “Nothing in this Chapter shall be construed to empower a Party’s authorities to undertake labor law enforcement activities in the territory of another Party.”

But making changes to the text may be the only viable option for Democrats to secure enforcement. They would need to reopen the agreement and include an annex to the chapter similar to that which appears in the U.S.-Peru Free Trade Agreement’s environmental chapter Annex 18.3.4 on Forest Sector Governance, which was invoked by the United States in October 2017 to block illegal timber exports from Peru. In particular, Articles 5-7 of that annex provide commitments on verification and enforcement measures:

Verification and Enforcement Measures

5. The Parties shall cooperate for the purpose of enforcing or assisting in the enforcement, and deterring circumvention, of the laws, regulations, and other measures of each Party related to forest sector governance, including those related to the harvest of, and trade in, timber products.

Audits of Producers and Exporters

6 (a) Peru shall conduct periodic audits16 of producers and exporters in its territory of timber products exported to the United States, and verify that exports of those products to the United States comply with all applicable laws, regulations, and other measures of Peru governing the harvest of, and trade in, timber products including, in the case of tree species listed in CITES Appendix II, relevant chain of custody requirements.

(b) In addition, on the written request of the United States, Peru shall conduct an audit of a particular producer or exporter in its territory as specified in the request, with a view to evaluating the compliance of that producer or exporter with those laws, regulations, and other measures. On written request of the United States, Peru shall provide a written summary of its finding of the request audit. The United States will treat any documents or information exchanged in the course of an audit as confidential if such documents or information had been designated by Peru as confidential under Article 5.6.

Verifications

7. On the written request of the United States, Peru shall verify whether, with respect to a particular shipment of timber products from Peru to the United States, the exporter or producer of those products has complied with applicable laws, regulations, and other measures of Peru governing the harvest of, and trade in, those products.

Getting Mexico to agree to such changes however, may be a challenge.

Second, there are mechanisms within the labor chapter that could be used to facilitate enforcement. Article 23.12.5 enumerates 18-plus cooperative activities that the parties can undertake to address labor issues, such as the identification and movement of goods produced by forced labor, and combatting forced labor and human trafficking, including on fishing vessels. If these problems are considered to be shared, then working cooperatively to address them, instead of placing the entire burden on Mexico, may be a more positive path forward.

Third, the USMCA has made the labor provisions subject to dispute settlement, and particular language has been clarified to account for criticisms from labor groups after the U.S. loss in the U.S-Guatemala labor case under the CAFTA. The main issue with dispute settlement, however, is that the text of the USMCA remains nearly identical to NAFTA, whose state-to-state dispute settlement function was easily stalled through blocking the appointment of panelists. If the Democrats are serious about strengthening enforcement, they should call for changes to the dispute settlement provisions found in Chapter 31 to ensure that the entire agreement can be enforced.

Finally, while it is true that a level playing field requires every party to abide by the same rules, and that we should all aspire to high commitments, we need to ask how we can balance high standards agreements with the capacity constraints faced by countries climbing the development ladder. This is a discussion bigger than any single trade agreement and should be openly debated in the appropriate multilateral forums. The World Trade Organization is currently in the midst of this debate, which could have major implications for developing countries.

It is without question that Mexico has struggled to address many of its labor challenges, but reform efforts have been building. In particular, President Lopez Obrador campaigned on this issue. Just last week he accelerated pressure on his own Congress to meet the obligations set out in the USMCA labor chapter, and they seem to have listened. But implementation of any new reform package is never easy. Mexico is clearly willing to make substantive changes in order to preserve a trade relationship it highly values.

Therefore, if labor enforcement is what Democrats want to push for, it is worth reflecting on the issues raised above to craft a more balanced proposal that takes Mexico's challenges with enforcement seriously. The current approach taken by Democrats on this issue is flawed, heavy-handed, and may not even improve enforcement.